Whilst high unemployment, particularly in the southern Eurozone combined with historically high levels of consumer debt in many European economies and the impact of fiscal consolidation represent real risk, on balance, the positives currently outweigh the negatives.
Sustained economic growth, job creation, low inflation and the prospect of real wage growth are all feeding through into improved consumer confidence and a brighter outlook for retail sales growth prospects across most of Europe.
Looking back, after every downturn there has been an upturn and therefore it shouldn’t be a surprise that at some stage we will witness signs of a sustained recovery. Each downturn is different however, and the severity and length of this latest economic downturn, coupled with structural change in retail has created prolonged uncertainty. There is risk in going too early, but equally if we fail to recognise the signs of recovery, we will miss the boat in a rising tide.
From a retail perspective, we know that we are not going back to a pre-crisis environment, as structural change in retail has fundamentally changed retailer requirements for space and retail as we knew it is being redefined. That being said, it is becoming clear that despite the success and inevitable future growth of e-commerce in particular, where market fundamentals are strong there is still very much a need for physical retail
Polarisation will continue. Retailer demand for the right space, albeit selective, will drive rents in the right retail locations. Legacy retailer portfolio optimisation and a fall in demand for space in weaker locations will inevitably result in the adverse effects of polarisation playing out further. Clearly, retailers and real estate investors will have to navigate these choppy waters, and investors will be presented with new challenges in underwriting retail assets.
As I point out in my latest podcast, multi-speed economic growth, retail sales growth and selective retailer demand for space across Europe will present opportunities in retail, but also continued uncertainty. The outlook for retail is bright, although until the dust settles and the effects of structural change play out, there will be the presence of additional risk that has not always been a feature of previous recovering markets.